GMAC Confirms Discussions on Commercial Bank

GMAC Financial Services is in formal discussions with federal regulatory authorities regarding a potential shift into bank holding company status under the Bank Holding Company Act of 1956, the ailing financial services giant confirmed Wednesday morning. HousingWire covered news of GMAC’s pending transition on Wednesday, which would give the auto and mortgage financier direct access to taxpayer funding under the U.S. Treasury’s Troubled Asset Relief Program, or TARP. Executives at GMAC also said the company — should it become a commercial bank — would look to raise what was characterized in a press statement as “significant” additional capital, and would look to make a private offer that would exchange existing debt for “a reduce principal amount of new indebtedness.” No further details on the pending exchange offer were provided on Wednesday, but the extra capital would be required to move GMAC to a level consistent with regulatory standards for commercial banks. “The benefits of this type of restructuring would allow us to put additional capital and liquidity resources immediately to work in financing consumers and automotive dealers,” said GMAC CEO Alvaro de Molina. The plan involves a complex GM-Chrysler merger discussion that would give Cerberus a much larger stake than its current 51 percent in GMAC, allowing the lender to convert to a commercial banking charter, according to previous media reports. While much of the discussion around GMAC has thus far centered on the financial company’s auto financing arm and lobbying by Detroit around the importance of saving the U.S. auto industry, the firm also owns troubled residential mortgage lender Residential Capital, LLC — so a conversion to a bank holding company would allow ResCap to tap into TARP funding, as well. On Sept. 3, ResCap cut 60 percent of its workforce and exited wholesale mortgage banking amid continuing struggles, leaving it with only a small correspondent and direct lending channel to fund future originations. ResCap reported a net loss of $1.86 billion for the second quarter at the end of July; the loss came after a massive $60 billion refinancing package earlier in the quarter had saved it from likely bankruptcy. That package saw debtholders agree to modified terms, as well. The Treasury has already marked $250 billion in TARP funds as capital injections for approved commercial banks; the capital needs at GMAC alone would use up a good chunk of the remaining funds, HW’s source said. In other words, as we’ve heard from sources since the TARP was first announced, $700 billion isn’t nearly enough. Write to Paul Jackson at [email protected].